Bitcoin Crash: Is It Time To Get Out?

Bitcoin's plummeting and a whole lot of cryptocurrencies are going down with it. Since early January, we've seen half the market value disappear. Some initially called it a 'bloodbath'. But it's been getting worse and worse. A single coin was once worth nearly $25000, now it's floating under $10000.

Is it time to get out?

That's a real tough question to answer.

The initial idea behind Bitcoin, the 'first cryptocurrency', was to provide an alternative to cash that was decentralized, taking power away from the banks and financial institutions. It was born not long after the Global Financial Crisis hit hard in 2008.

In the past year - and probably more accurately, the last three months - Bitcoin's value has skyrocketed against fiat currencies. This astronomical increase in value resulted in a perfect storm of conditions to push Bitcoin, and cryptocurrencies, into the mainstream. The idea that you could 'get rich quick' meant the technology and ideals behind Bitcoin were quickly forgotten.

Everybody took notice without even understanding what cryptocurrency really is. People started to buy coins because it was trendy. You overheard them on the train, talking about their Bitcoin and Lambos.

And now we're here. The Cryptpocalypse.

In the last month, cryptocurrency markets have crashed. Hard. Due to falling trade volumes in Asia and the threat of a crackdown on cryptocurrency exchanges, people are cutting their losses. The market is correcting itself.

If you're holding Bitcoin, or if you recently invested, this graph is worrying.

Image: bitgur.com /

Should you get out now?

Well, first - Lifehacker is not a professional financial adviser, in any way shape or form. We write stories about ways to make your life easier and those stories sometimes involve money.

Second - it's nearly impossible to say if you, personally, should sell. You have to weigh up your options. How much did you buy in for? Are you willing to cut your wins/losses and jump out now? Do you understand the technology and believe it will do good or were you just here to make a quick buck? There's so many questions that are just a matter of perspective. Personally, I've seen a huge dip in my cryptocurrency gains and I have only invested tiny, tiny amounts.

Third - it's a volatile space. One of the issues that the cryptocurrency space is currently dealing with is an influx of fake reports and media that can dramatically alter the price of cryptocurrencies in a matter of hours. Often, this information quickly disseminates through cryptocurrency communities on Twitter and Facebook, which leads to buyer's selling off and the price dropping - even if the news has been computer-generated by a bot in China. The market is just that volatile. It's so volatile that since I started writing this article, Bitcoin is already mounting a mini-comeback - up around USD$1000 (and now back down $300 [it never ends!])

Truthfully, we're seeing all sorts of speculation, refreshing market cap websites, thinking we can see what's coming or what cryptocurrency will be the next to see meteoric rises, but in reality we're all just fumbling in the dark, trying to grab onto a wall and find a lightswitch. No one has found the lightswitch. We can't see what's going to happen.

If you look further back, you'll find that the price of Bitcoin has 'corrected', for want of a better word, to it's pre-media-hysteria levels.

Image: bitgur.com

Visualisation of the price ($USD) for 1 Bitcoin from November 2017 to February 2018

The only advice I can really give: Research what you're getting into. Research. Research. Research.

Before you buy any cryptocurrency: Research.

Jackson Palmer, creator of the 'joke' cryptocurrency DogeCoin, penned a long piece about the state of cryptocurrencies on January 12. In the piece he speaks to the idea that cryptocurrencies have deviated greatly from their initial, lofty goals and even speaks about 2017 as 'the year that cryptocurrency stopped being about technologically innovative peer-to-peer cash and instead essentially became a new, unregulated penny stock market.'

Palmer also mentions the old stock market adage: “When your taxi driver is telling you to buy stock, you know it’s time to sell.”

The fundamental changes we've seen in the last month or so - after Bitcoin really skyrocketed - is the adoption of cryptocurrencies for the sake of making money. This has happened in the general population. Some people are buying Bitcoin without ever having read a thing about it. They just don't want to miss out. The FOMO is real. The hype levels have reached highs that may make even Tulip Mania look stupid in years to come.

But all those people that bought in to make a quick few dollars are selling. They have to get out - they bought high and now their dollars are dwindling as the crash hits. Severely dwindling. If you bought 1 Bitcoin for $25000, you've already lost $15000. It's a scary proposition.

Some will stand to lose a lot of money. That's why the top post on r/Cryptocurrency is a link to the US Suicide Hotline.

Sadly, if you've invested when the price was high, no one can really tell you what to do. You're probably staring down the barrel of some huge losses. Is it time for you to get out? I wouldn't imagine so.

If you fundamentally believe in the technology, the advancement of Bitcoin as a potential currency that can change how we view 'money' - then you're going to hold.

This isn't the bottom. It's still steadily dropping. Plus it's much more likely to be $1 than $10,000 in 12 months time. BitCoin goes viral every now and then and spikes beyond it's value. The chances of that happening again have dropped significantly thanks to the scale of the spike we've just seen.
When it gets to $3,000 we'll see a lot of investment in it because everyone is quoting that as the lowest point. That might stop it from falling but it probably wont last. Everyone has an opinion on BitCoin and most people think it's a dud. It has the reputation of a pyramid scheme.
Not to mention that the recent spike in attention put BitCoin on too many radars. It started the gears turning towards neutering cryptocurrencies. None of this means BitCoin can't spike again but I wouldn't bet my house on it.

Its not an easy one to answer. For me, there are two groups of people that have bitcoins. Those that have had them longer than 3 months, and those that have had them less. Change that timeframe as you want, but its the relevant one for this.

For those owning in the short term, no, its not time to sell. You're realising a loss, and in the end get nothing out of it but that hollow feeling of being out of pocket for potentially thousands.

Its like shares, where at the time of a crash the average investor wants to sell, but its usually the worst time - shares eventually bounce back, and often bounce to a higher point than they were before they crash.

For those that have owned longer than 3 months, its a different situation. For that, people are still in a profit scenario, where they will still be showing a profit if they sell. It then becomes a guessing game of whether bitcoin has further to fall or not, and how far.

At the end of the day, because of the amazing growth over the past 12 months, the only people really getting hit with this crash is those late to the party. Which is the case when any asset class drops in value.

So consider what you would do if it were shares or property, and go from there. Do you want to cash out while you still have a profit, or for more recent buyers, either realise the loss, or continue to take the same risk as any other investment and hope they recover?

Comparisons with shares or property are rather misplaced, as are statements such as BTC has the same risk as any other investment. No two investments have the same risk. Irregardless of whether you invested, speculated or used BTC as a store for your wealth comparisons with any other investment vehicle are a bit silly, as is using hope as an investment strategy.

True, your emotional perspective towards recent losses may be different if you are sitting on a net gain or a net loss but your reasons for selling or buying should be based on your reasons for believing there will be further losses or gains, and to some extent on your ability to absorb losses.

It is important to try to understand that the reasons people are buying or selling BTC are very different now than they were a few months and a few years ago. As an 'investor' do you want /expect to see it go back to its roots, I think not. Do you want it just go back to its peaks? You have to adjust to this. What you want to happen is immaterial, as are the reasons you may have got into it. Consider what you think it will do from now on, and why. An important question to ask yourself is if you had no bitcoin and never had any would you buy or sell it now. That includes an assessment of how much you can afford to lose. Not easy to do but that will tell you what you should do now.

Your comparison with trading shares is a fair one if you are talking about the emotional roller coaster of wins and losses. Like share investing the hard part is actually to take the emotion out of your decisions. Sorry Grunt if I disagree with you but it distresses me to read you hoping it will get better. Maybe you have good reasons but your post was written with only the emotional angle in mind, if that is the case I apologise if I misunderstood your motive, and you are merely encouraging people to stick with their convictions. That is pretty important too.

A discussion with a good friend or colleague that knows something about investing in general, and enough about bitcoin, might be more beneficial than a discussion with another bitcoin owner. They might help you assess the facts, decide on a course of action, based on your circumstances, that suits you, something that you can live with whichever way it goes. There are some basic principles of investing that are pretty important such as not having all your money in one or even correlated industries or instruments that can help prevent you from losing all your capital. This sort of advice is even more important than whether you should buy or sell a particular investment.

Hopefully you have a good grasp of this and I am preaching to the converted, no offence intended.

All good woofwoof, I probably didn't articulate it as well as it could have been. I'm basically saying there are two groups of people - those that have had bitcoins for a while, and those trying to cash in on the hype over the past couple of months. Each of those will have different motives for owning them, and hence different reasons for wanting to sell right now.

I'm actually saying to take the emotion out of it, and consider what you would do if other investments dropped in value. If someone bought shares on Monday, then saw the Dow Jones drop 5% in a day, what should they do? Panic and sell, and make the loss a reality, or trust the market to rebound?

Bitcoin has crashed before (very similar thing happened in 2013 when they lost 50% in 3 weeks), its something inherent in the system thanks to the lack of control So the swings are going to be bigger than most investment categories, and as a result, both the rewards AND risks are going to be equally as big. But its still an investment category, and has enough similarities to shares that its the easiest comparison to make.

I don't own any, and probably never will, despite considering it in the past. Long story, but essentially it came down to repaying a loan to a family member, or bitcoins, and the loan was a no brainer. Joke in the family is that it cost me $200k.

But I also work in tax, and see investments somewhat differently. Buy something, hoping to make a profit = investment, its that simple. The finer details you lay out are secondary to that basic truth.

People buying bitcoin with no intention of using them like @mixedemoticons below are investors (or near enough to consider if those issues apply), and need to consider them like any other investment. You don't sell property when the market is weak, just like you don't sell shares during a crash. The ones that do are the ones that lose.

Sick of hearing the negative Doom and Gloom reporting on this. BTC seems to have settled a bit now and is ticking along at a more sensible level, as @zak said, now is the time to opt in. I use it for paying for stuff when I get the chance, so I keep enough in there to keep it viable.

The old saying I got taught with this sort of thing, should be common sense but when it comes to these kinds of investments where you're trying to turn a little profit with your savings "Never invest more than you're willing or able to lose".

Bitcoin hit a high of $147.49 on 4/29/13 and a low of $65.53 on 7/5/13, for a total drop of -56%.
Bitcoin hit a high of $1156.12 on 12/4/13, and a low of $171.51 on 1/14/15, for a total drop of -85%.
Ether hit a hit of $3.54 on 8/7/15, and a low of $0.42 on 10/22/15, for a total drop of -88%.
Ether hit a high of $15.79 on 6/22/16, and a low of $5.98 on 12/6/16, for a total drop of -62%.
Ether hit a high of $414.76 on 6/12/17, and a low of $133.72 on 7/16/17, for a total drop of -68%.
How does that compare to our current market?

Bitcoin hit a high of $20,089 on 12/17/17 and is currently at $6,756.03, for a drop of -66%.

Ether hit a high of $1417.38 on 1/10/18 and is currently at $657.12, for a drop of -54%.

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